Are Convertibles Poised for a Comeback?

Convertibles have been looking a bit shabby lately, but they could be mounting a comeback.

Mutual funds that employ convertibles as part of their strategies have not fared well recently, ranking above only specialty financial and technology funds in performance for 2005, Associated Press reports.

"Most investors, they're going to look at the last few years and say, forget it," said Nick Calamos, co-chief investment officer of convertibles specialist at Naperville, Ill.-based Calamos Mutual Funds. "But the opportunity is ahead of us, not behind us."

Calamos said that convertibles are priced right now for attractive risk-reward and undervaluation. Over the last three years, convertibles have been priced much higher, but now that prices are coming down, convertible-minded investors are taking advantage of the bargain.

Convertibles are like interest-yielding bonds that can be converted into stocks at a later date. This potentially gives investors equity-like performance with downside protection, but that hasn't paid off well lately, throwing the market into a tailspin.

There are 28 mutual funds on the market that deal with convertibles, varying from pure-play strategies to ones blended with equities investing. Of these, two are no-load, with the formerly-closed Vanguard Convertible Securities Fund set to reopen, following a precipitous decline in assets. Last May, the fund had $1.1 billion in assets, but it now has only $565 million.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.